Smart Money Tips

When You Should or Should Not Max Out Your 401(k)

Maxing out a 401(k) isn’t the best choice for everyone, even if you can afford it. 

By the end of this article, we’ll cover when you should or should not max out your 401(k), what it takes to max out your 401(k) (you may not be actually fully maxing out your 401(k), and other financial goals you may want to consider if you do not max out your 401(k).

Before you can decide if maxing out your 401(k) makes sense for you, you will need to look at all of your financial goals and priorities. 

What matters most to you – retiring early, paying for your kids’ education, traveling more while you’re young?

There’s no one right answer, only what is best for your unique situation. 

As CERTIFIED FINANCIAL PLANNERS™, we often see people who think they are maxing out their 401(k) account but are not. 

Do not confuse “maxing out” with just contributing enough to get your full employer match. We’ll cover more on that below. 

Let’s get started!

Ground Rules: What You Need To Know Before You Max Out Your 401(k)

Many companies offer a 401(k) retirement plan to help you save and invest for the future. 

With a regular 401(k), your contributions come out of your paycheck before taxes are taken out. One upside of contributing to your 401(k) is it can help lower your tax bill for that year.

Many plans also offer a Roth 401(k), where you contribute after-tax dollars.
The big benefit of both 401(k) contribution options is that your employer will match part of what you contribute. For example, 50% of the first 6% you put in. It’s usually smart to contribute enough to get the full company match – that’s free money!

What Does Fully Maxing Out Your 401(k) Mean?

When we talk about “maxing out” a 401(k), this means contributing up to the annual IRS limit, not just maximizing your employer match. 

For people who are focused on retirement savings, it’s recommended to strive to hit the IRS maximum each year. 

For those who can’t hit the full IRS maximum, try to steadily increase your contribution rate a small percentage each year or when your income increases. If you get a raise, bump up your 401(k) contributions by 1-2% of your new pay. This allows your savings to grow without feeling the impact as you start to earn more money. 

With some financial planning each year, maxing out your 401(k) contributions is a more achievable goal than you may think. And that small and steady bump adds up over time. 

For example, let’s say you make $150,000 per year and start retirement savings with 4%. Each year, you increase that rate just a little. Here’s how it can add up.1

Increase retirement savings each year

How Much Can I Contribute To My 401(k) In 2024?

When deciding how much to contribute to your 401(k), there’s no single right amount for everyone. But a few key factors to consider are:

  • Contribute as much as your budget comfortably allows. The power of 401(k) plans is the automatic deductions from your paycheck. This makes saving effortless.
  • If you’re on the fence between two contribution amounts, go with the higher option. Most people quickly adjust to the new take-home pay.
  • Try increasing your contribution percentage every time you get a raise. Bump it up 1-2% each year to grow your savings over time.
  • Work towards maxing out the annual IRS limits if possible. For 2024, that’s $23,000 per year for those under 50 or $30,500 for those over 50.

The more you can consistently contribute through automated deductions, the better off your future finances and retirement will likely be.

Below is a clear breakdown of all the contribution limits for 2024. 

The contribution limits often change each year. Make sure you review what the limits are every year and adjust your contributions. Or, if you work with a CFP® in Austin or virtually around the country, they will manage your financial plan and help you hit all the contribution limits.2

IRA Contribution Limits 2024

To see what an advisor can help take off your plate including your retirement savings strategy and making sure you take advantage of your company match, see this detailed chart

How Much Should I Contribute?

Contributing enough to get your full employer 401(k) match should always be your first priority. That’s free money! 

Beyond the match, deciding how much to contribute can be tricky. If you’re in a high tax bracket, maxing out the $23,000 annual IRS limit ($30,500 if over 50) is often smart to get tax savings. 

On average, aim for contribution benchmarks like: 10% of your salary, increasing 1-2% each year as you get raises, and ultimately working up to maxing out the IRS limits. 

In terms of total savings needed for retirement, shoot for 25-30 times your desired annual spending. For example, if you want $50,000 annual retirement income, aim for $1.25-$1.5 million total saved up by retirement. Use these goalposts to help decide your 401(k) contribution amount at each stage of your career.

When to Max Out A 401(k)

There are many situations where maxing out your 401(k) contributions could be the right move.

If you have:

  • Steady positive cash flow after paying your bills
  • Built up your emergency savings
  • Paid off all high-interest debt
  • Considered other tax-advantaged accounts

When all of the above factors are true, we often recommend maxing out your 401(k) retirement account.

When should you max out your 401(k)?

Additionally, if you want to reduce your taxes, contributing the maximum to a pre-tax 401(k) can be helpful. 

This usually applies if you’re in a high-income tax bracket and have already funded other personal finance goals. Look at your own situation to determine whether maxing out your 401(k) aligns with your top priorities and goals. 

You can also speak to a CFP® at Archer to get a total review of your finances, help you decide if maxing out your 401(k) makes sense for your scenario, and how maxing out your retirement accounts will impact your financial future. 

See if one of our team member’s bios resonates with you.

When Not to Max Out a 401(k)

Maxing out your 401(k) contributions might not make financial sense if you don’t earn a high salary. 

For example, if you make $50,000 per year, contributing over 40% of your pay to retirement savings could leave you cash-strapped to pay current bills and expenses. Make sure you have enough income remaining after 401(k) deferrals to cover your necessities.

You also need to look at the costs and investment options in your specific 401(k) plan. 

Some plans charge high fees or only offer expensive, actively-managed mutual funds. In that case, you may be better off contributing enough to get the full match, than investing any extra savings into an IRA with better funds and lower expenses. Don’t overfund a suboptimal 401(k).

Finally, if you are still working on building up emergency savings or expect major expenses soon, it’s perfectly fine to keep your 401(k) deferrals lower. 

For example, if you want to buy a house in a couple of years, divert more cash to your down payment fund rather than maxing out retirement savings. It’s important to know your priorities.

Before maxing out your 401(k)

In general, while it is a noble goal to max out your 401(k) plan each year, if you are struggling to maintain a decent cash buffer (such as an emergency or rainy day fund) or might soon face a cash need, then absolutely do not feel bad about keeping your 401(k)-contribution percentage low.

Other Goals That May Compete With Your 401(k) Contributions

The most common reason our clients ask us if it makes sense to lower their contribution rate for a period of time is because they have competing financial goals.

From a cash flow perspective, you may be trying to fund many things that compete with your 401(k): 

  • Paying down debt
  • Saving for a dream travel trip
  • Purchasing a new home
  • Saving for college
  • Supporting a loved one
  • Medical bills

If you work with a CERTIFIED FINANCIAL PLANNER™ you can get a more detailed view of how reducing your contributions–even for a short period of time–will impact your long-term finances. 

For example, if you drop your contributions for six months or a year, how big of a hit your retirement accounts experience? 

Ultimately, you will have to decide if the impact is too great.

If the impact is reasonable and will not impact your retirement lifestyle or income each month in retirement, you may be fine to step back for a short period of time.

However, it can be challenging to restart your contributions once you get used to having the extra cash flow, so we often encourage clients to stay consistent with their savings rates and goals. 

Why 401(k) Retirement Calculators May Not Be Fully Accurate 

Many 401(k) plans offer calculators on their websites that can give you a quick “stop light” indication of whether you’re on track. Green means you’re on target, yellow is caution, and red means you may be falling behind. Just remember these tools provide very general guidance.

For a more customized assessment, work with a financial planner, especially as you get closer to retirement. We can factor in your full financial situation like other savings and investments beyond just your 401(k). As financial planners, we also run scenarios to give you more nuanced guidance.

In general, figure out your desired retirement lifestyle and income needs first. 

Then work backwards to calculate how much you need to save each month and year to reach that goal. This will tell you if you should be contributing less, more, or the maximum to your 401(k). 

Don’t just blindly max out your 401(k) or other retirement accounts without tying it to your bigger picture retirement plan.

Getting a professional assessment ensures you’re saving enough for the retirement you want, but not overdoing it. Remember, balance saving for later with enjoying life now too. 

Financial Priorities to Tackle

Determining if you’re ready to max out your 401(k) can seem daunting, but here are some key goals to tackle before you do:  

  1. Ensure you have a fully funded emergency fund to cover three to six months of living expenses 
  2. Focus on paying off any high-interest credit card debt to avoid hefty interest charges
  3. Fund your immediate financial goals before allocating extra money to your retirement account 
  4. Review your insurance coverage to make sure you’re adequately protected

When balancing saving for retirement with current financial goals, it’s essential to plan collaboratively with your partner if you have one. 

Consider all household accounts, sources of income, and financial objectives together. Avoid making isolated decisions and instead look at the big picture to make informed choices about your 401(k) contributions and other financial matters. 

By prioritizing these steps, you can set yourself on a solid financial path while working towards a comfortable and stress-free retirement.

Saving More Is Usually Still The Right Decision

When thinking about retirement, saving more is usually a good idea. 

For people who earn a lot of money, just putting all their savings into a 401(k) might not be enough when they retire. Even if they max out their 401(k) every year, they could still end up with less money to live on after they stop working.

Imagine someone who made a lot of money each year but only saved in their 401(k). When they retired, they found they had to live on much less money than they were used to. This shows why it’s important to look at other ways to save, especially for those who earn a lot.

So, it’s smart to be flexible with your retirement savings. While this article talks about whether to max out your 401(k), it’s also important to think about saving more money overall

Many people don’t have enough saved for retirement, so it’s a good idea to save as much as you can, be ready for unexpected expenses, and pay as little tax as possible in the long run. 

The main goal is to make sure you have enough money to enjoy your retirement years comfortably while also enjoying today.

A Dynamic Approach to 401(k) Saving

How often should you check in on your 401(k) plan? 

Well, it’s a good idea to do a review when big life changes happen, like if you’re worried about losing your job or if you’re planning to make a big move. Major life events can impact how much you should be saving for retirement. 

For example, if you think you might lose your job, you might want to save more money now just in case. 

But even if there aren’t any big changes, it’s smart to take a look at your 401(k) once a year, usually at the beginning of the year. This is a good time to see if you need to save more, especially if the rules about how much you can save have changed.

When it comes to adjusting your 401(k) contributions, you have flexibility. 

You can change how much money you’re putting into your 401(k) anytime you want. One handy trick is to set up something called “auto-increase” or “auto-escalation.” 

This feature automatically boosts how much you’re saving without you needing to do anything. It’s like giving your savings a little nudge every year, especially if you set it up to increase along with any raises you get. 

So, whether you’re facing big changes or just want to fine-tune your savings strategy, your 401(k) plan is one of the most powerful savings vehicles on the planet and a great way to save for a strong retirement. 

The Bigger Picture: 401(k)s Are Only One Part Of Your Financial Plan

When it comes to saving for retirement, the 401(k) is often seen as the go-to option. It’s easy to use and can feel like it’s running on autopilot, making it a popular choice. 

However, it’s important to remember that while the 401(k) is convenient, it might not be the only thing you need in your financial plan. 

The most important step is to understand your goals and timing. Simply saving money without a clear plan can lead to saving too much or too little for your needs. Building your net worth is just one part of a good financial plan. It’s essential to think about other important aspects, too. 

This includes having a formal estate plan, which includes things like a living will and trust accounts. Additionally, having health and disability insurance is crucial for protecting yourself and your loved ones. And don’t forget about planning for long term care needs if they arise. 

By considering these factors alongside your retirement savings, you can create a well-rounded financial plan that sets you up for success.

Should I Keep Contributing to My 401(k) & What Happens If You Contribute Less 

If you stop contributing to your 401(k) – even temporarily – there are risks to consider. 

Firstly, you might miss out on employer match savings, which is like free money for your retirement. 

Stopping contributions also disrupts the habit of saving regularly, making it easier to get used to the extra money in your paycheck and harder to start saving again later. 

It’s like swimming against the current when you try to restart contributions after stopping them. To avoid these risks, it’s often recommended to keep contributing to your 401(k), even if it feels a bit challenging at first.

Stopping your 401(k) contributions can have a major impact on your financial situation later in life.

For example, let’s say you’ve been saving $200 a month in a retirement account and have $200,000 today. What could happen to your savings in 25 years if you change your monthly savings amount?

How do savings grow in my 401(k)?

This hypothetical situation contains assumptions that are intended for illustrative purposes only and are not representative of the performance of any security. There is no assurance similar results can be achieved, and this information should not be relied upon as a specific recommendation to buy or sell securities.

Hypothetical calculators assume a 6% investment return for 25 years in no particular investment, reinvestment of all realized gains, dividends, and interest, and do not account for fees, expenses, or taxes. If all taxes, fees, and expenses were reflected, reported values would be lower.

You might wonder if you can change where your 401(k) contributions are invested. While you typically can’t precisely choose your 401(k) investments, you may have the option to choose from different investment funds offered by your employer’s plan. 

However, if you’re interested in more control over your investments, you could explore self-directed accounts outside of your 401(k). 

These accounts allow you to choose specific investments, but they come with their own set of considerations and risks. It’s essential to weigh your options and consider seeking advice from a financial professional before making any changes.

Frequently Asked Questions Around 401(k) Contributions

1. Should I max out my 401(k) or save for a house?

If you’re debating between maxing out your 401(k) or saving for a house, remember that prioritizing retirement savings can ensure you have a home in your golden years.

2. Should I max out my 401(k) or invest elsewhere?

Maxing out your 401(k) is a solid choice due to its tax advantages, which often outweigh the benefits of investing elsewhere in a separate brokerage account.

3. Should I max out my 401(k) or HSA first?

When it comes to choosing between maxing out your 401(k) or your HSA first, it’s a bit of a puzzle. 

Here’s a simple plan: Get the match in your 401(k) then max your HSA. 

It’s like a super-charged savings account because there are three ways you save on taxes: you won’t pay taxes when you put money in, take it out, or use it for medical expenses. Since healthcare costs in retirement can be really high, having money in your HSA can be a big help down the road. 

After getting any free money from your employer match in your 401(k), you might focus on filling up your HSA first before going back to boost your 401(k). 

Also, don’t fall for the idea that whole life insurance is always better than a 401(k). Stick with building your retirement savings in your 401(k) first. 

Finally, some 401(k) plans let you choose your own investments beyond what’s offered in the plan through something called a self-directed brokerage account. It’s worth considering if you want more control over your investments.

Maxing Out 401(k) Retirement Accounts Is Not For Everyone


It’s wise to prioritize various financial goals and saving strategies before maxing out your 401(k). While it’s beneficial for high-income earners to reduce their tax burden by contributing to their retirement accounts, not everyone needs to max out their 401(k) contributions. 

It’s essential to carefully weigh the advantages and disadvantages of doing so, considering potential risks from now until retirement.

Get Hands-On Help With Your Finances

Now that you know the options for your 401(k), you may be thinking about all the other areas of your financial life you need to consider. 


If you want help setting clear financial goals, lowering your taxes, and planning for a stress-free retirement, that’s what we do. 

Click below to tell us a bit more about you and schedule a call with one of our friendly and detailed-oriented CERTIFIED FINANCIAL PLANNERS™.   

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1 For illustrative purposes only. Assuming 3% yearly raise. Does not reflect federal or state tax or other payroll deductions.
2 The IRS website is a great resource for checking the 401(k) contribution limits for 2024 or any year.

Editor’s Note: This article was originally published in January of 2023. It has been updated and republished to provide more detailed information.